Asian stocks finished into green territory on Tuesday as market participants closed their short positions and searched for undervalued stocks to put their money into. Most investors, however, acted cautiously as they are waiting for the Federal Reserve Chairman Ben Bernanke’s testimony in front of the U.S. Congress, which is scheduled to begin tomorrow. Stocks were trading lower on the worse-than-expected U.S. retail sales and on the lower International Monetary Fund global growth forecast, but after that equities pared their losses and moved higher on speculations that the Fed will be compelled to start a new wave of quantitative measures after the recent wave of negative economic data. The FTSE CNBC Asia 100 Index, which tracks the performance of markets across Asia, added 1%. Japan’s Nikkei share average advanced after the finance ministry reacted to the yen’s fresh new one-month high against the dollar, saying that it is willing to intervene the currency markets in order to stop any further appreciation in the low-yielding currency. The Japanese benchmark index was pulled higher by gains in a small number of heavyweight companies, while the broader Topix dipped 0.4% as traders remained skeptical about the growth of the world economy after earnings releases have been disappointing so far. The Nikkei added 0.4% to finish the day at 8,755.00, paring an early decline, after Finance Minister Jun Azumi hinted that Bank of Japan could intervene in the currency market. South Korean stocks inched slightly higher, partly on software trading as widening spread margins prompted hedge funds to close their futures contracts and buy over-the-counter stocks. The Korea Composite Stock Price Index (KOSPI) rallied 0.2% to end at 1,821.96 points. Australian stocks climbed 0.9%, adding to the gains they posted in the previous two sessions as worse-than-expected U.S. data sparked talks of more stimulus measures. The benchmark S&P/ASX 200 index advanced 35.7 points to close at 4,140.8, propelled higher by a rally in the leading Australian banks. New Zealand’s benchmark NZX 50 index finished almost unchanged at 3,468.8. China’s main stock index closed 0.6% higher, paring early declines and rebounding from the lowest close in over three years set the previous day. The Shanghai Composite finished at 2,161.2 after opening at 2142.4, which is a fresh new intraday low for the period after March of 2009. The CSI300 Index, which measures the performance of largest 300 companies in Shanghai and Shenzhen, also closed higher, posting a gain of 0.6%. Hong Kong stocks posted their best day in more than two weeks, outperforming their Asian peers as local property developers, insurers and railway companies finished the day with very decent advances. Both the China Enterprises Index of the largest Chinese companies in Hong Kong and the Hang Seng Index gained 1.8%. The 30-share BSE Index inched 0.01% higher to close at 17,105.30 points, and the 50-share NSE Index dipped 0.08% to end at 5,192.85 points. In Southeast Asia, Singapore’s Straits Times Index and Malaysia’s benchmark KL Composite added 0.5% and 0.2%, respectively.
European stocks moved in tight range along the flat line on Tuesday as market participants were waiting for the Fed Chairman Ben Bernanke to unveil plans for further stimulus measures. The FTSEurofirst 300 declined 0.76 points or 0.1% to trade at 1,042.95, with the index moving between 1,030 and 1,050 all day long. Volumes were at just 23% of their 90-day moving average as investors preferred to stay on the sidelines ahead of today and tomorrow’s economic releases. The performance of cyclical stocks such as banks and miners was also indicative of the investors’ cautious approach to the market. Defensive stocks continue to be a potentially expensive investment with food and beverage equities trading at 17 times price-to-earnings, while miners are risky stocks to go to when the economic outlook is taken into consideration. Central bank action in Europe and China has fueled a rally in the FTSEurofirst, which has moved the index 9.3% higher in the last six weeks, but the benchmark continues to trade 5% below its 2012 highs, which we touched in March. European companies are projected to report a 9.7% decline in earnings growth during the current earnings season, according to Thomson Reuters. The Stoxx Europe 600 index inched slightly lower to 256.64, but the index was moving both above and below the flat line all day long. G4S PLC was one of the biggest losers, plunging 6%, as the company was downgraded from buy to neutral by Bank of America Merrill Lynch. On the data front in Europe, the ZEW index of German investor expectations declined to –19.6 in July from –16.9 in June. Spain’s IBEX 35 index performed better than most of its European counterparts, rallying 1% to trade at 6,595.60. The gain came after the Spanish government successfully issued 3.56 billion euros of government debt securities at borrowing costs that were sharply lower.
U.S. stocks opened into the green on Tuesday after several companies announced earnings that surprised on the upside and as market participants were hoping that Fed Chairman Ben Bernanke may announce new wave of stimulus measures when he testifies before the Congress tomorrow. The Dow Jones Industrial Average moved higher at the open, pulled higher by Coca-Cola and Disney, paring most of the declines it posted in the previous session. The S&P 500 and the NASDAQ also moved higher in the beginning of the trading session. The CBOE Volatility Index, considered by many as the best indicator of fear in the market, moved below 17. All 10 S&P sectors opened higher with consumer discretionary and materials among the biggest gainers. On the economic front, consumer prices were unchanged in June, in line with what analysts were expecting, as the cost of gasoline declined. At the same time core CPI rose 0.2%, posting its fourth-consecutive month of gains. Industrial production rose 0.4% in June, while capacity utilization was 78.8%. Analysts’ expectations consolidated around an increase of 0.3% for industrial production and 79.2% for the capacity utilization. The data still signaled a slowdown in economic growth in the second quarter as manufacturing output gained at an annual rate of 1.4%, down from a 9.8% rate in the first quarter. The National Association of Home Builders/Wells Fargo is scheduled to release its July housing market index at 10:00 a.m. Eastern Time. Analysts are projecting a reading of 30 versus 29 for the month of June. Among earnings, Goldman Sachs rallied after the financial giant significantly outperformed economists’ expectations. On Monday, Citigroup posted earnings that were also in the upper range of analysts’ projections.
Dow Jones Industrial Average
The Dow moved lower on Monday, paring some of the gains it posted on Friday as retail sales figures disappointed and business inventories increased more than expected. The blue chip index pushed below both its 25-period and its 200-period moving averages, finishing slightly above the lows for the session at 12,688.85. Today the benchmark moved higher in early trading, but after that the index erased all its gains and moved into negative territory. Now we are trading at 12,644.43, just off of the session lows at 12,646.33 after breaking below the 50-period moving average earlier on. Support in the index is provided by the lows we reached on Thursday, while resistance stands around 12,800. Oscillators are in mid-range with the relative strength index at 46 and the stochastic around 69. The MACD is moving in tight range, very close to the key 0 level.
Gold
Gold trended lower in the early hours of yesterday’s session, but, after crossing the 25-period moving average for a brief moment, it rebounded and moved into green territory. The bullion traded as high as 1595 at one point during the day, before finishing around 1590. Today the precious metal penetrated above its 200-period moving average, but failed to hold on to its gains as bears took control of the market and pushed the price of the bullion sharply lower. Gold moved below both its 25-period and its 50-period moving averages, touching lows of 1571.40 for the day. The precious metal is currently changing hands at 1576.41 as the bulls managed to push it above the lows, at least for now. Support in the bullion is provided by the lows we reached at the end of last week around 1565. Resistance, on the other hand, stands at the 200-period moving average around 1596. Oscillators are all trending lower with the relative strength index currently standing at 42, while the stochastic is at 23. The MACD is moving in tight range, but it has finally moved above the key 0 level.
USD/JPY
The currency pair moved lower almost all day long yesterday, touching lows of 78.65 for the session. The USD/JPY, however, managed to pare some of its severe losses towards the end of the session and finished the day at 78.82. Today we are seeing the dollar appreciating against its Japanese counterpart as the Japanese finance minister announced that the central bank might intervene in the currency market if the yen continues to strengthen. The currency pair touched highs of 79.17 for the day, but it is now trading off of these highs at 79.00. Support is provided by the key 78.80 level, while resistance continues to stand at the 200-period moving average around 79.42. Oscillators are in mid-range with the relative strength index at 43 and the stochastic around 58. The MACD is in a trading in tight range, but is has moved further away from the key 0 level.
Disclaimer:
The information in this analysis is collected from different sources and should serve for informative purposes only. The author shall not be held responsible for the validity of the presented information. No part of this analysis recommends the purchase or sale of a currency pair or any other financial instrument.
